Correlation Between Provident Agro and Uni Charm

Can any of the company-specific risk be diversified away by investing in both Provident Agro and Uni Charm at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Provident Agro and Uni Charm into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Provident Agro Tbk and Uni Charm Indonesia, you can compare the effects of market volatilities on Provident Agro and Uni Charm and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Provident Agro with a short position of Uni Charm. Check out your portfolio center. Please also check ongoing floating volatility patterns of Provident Agro and Uni Charm.

Diversification Opportunities for Provident Agro and Uni Charm

0.23

Correlation Coefficient

Provident Agro  Uni Charm

Modest diversification

The 3 months correlation between Provident and Uni is 0.23. Overlapping area represents the amount of risk that can be diversified away by holding Provident Agro Tbk and Uni Charm Indonesia in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Uni Charm Indonesia and Provident Agro is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Provident Agro Tbk are associated (or correlated) with Uni Charm. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Uni Charm Indonesia has no effect on the direction of Provident Agro i.e., Provident Agro and Uni Charm go up and down completely randomly.

Pair Corralation between Provident Agro and Uni Charm

Assuming the 90 days trading horizon Provident Agro Tbk is expected to under-perform the Uni Charm. In addition to that, Provident Agro is 1.87 times more volatile than Uni Charm Indonesia. It trades about -0.03 of its total potential returns per unit of risk. Uni Charm Indonesia is currently generating about -0.04 per unit of volatility. If you would invest  109,725  in Uni Charm Indonesia on October 21, 2024 and sell it today you would lose (34,225) from holding Uni Charm Indonesia or give up 31.19% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Provident Agro Tbk  vs.  Uni Charm Indonesia

Provident Agro Tbk

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Provident Agro Tbk has generated negative risk-adjusted returns adding no value to investors with long positions. Despite quite persistent forward-looking signals, Provident Agro is not utilizing all of its potentials. The latest stock price mess, may contribute to short-term losses for the institutional investors.

Uni Charm Indonesia

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Uni Charm Indonesia has generated negative risk-adjusted returns adding no value to investors with long positions. Despite conflicting performance in the last few months, the Stock's forward-looking signals remain quite persistent which may send shares a bit higher in February 2025. The latest mess may also be a sign of long-standing up-swing for the company institutional investors.

Pair Trading with Provident Agro and Uni Charm

The main advantage of trading using opposite Provident Agro and Uni Charm positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Provident Agro position performs unexpectedly, Uni Charm can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Uni Charm will offset losses from the drop in Uni Charm's long position.

The idea behind Provident Agro Tbk and Uni Charm Indonesia pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.